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The World Economy

Published online by Cambridge University Press:  26 March 2020

R. Barrell ,
R. Anderton ,
GM Caporale  and
JW in't Veld
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Extract

The realignment of the ERM in September, and the subsequent withdrawal of the UK and Italy from the mechanism, have caused a degree of uncertainty in the financial markets. In our last forecast we were anticipating a realignment of the lira at the end of September (National Institute Economic Review No. 141) but we expected a more orderly adjustment of exchange rates than took place. We analysed the effects of a realignment in a note in the August 1992 Review, and we expected the consequences to stimulate activity in Europe. The uncertainties surrounding the exchange-rate outlook make our main case less sanguine than it would otherwise have been. The resulting prospects for slow growth in Europe have to be combined with a modest recovery in the US and Canada and continued below capacity growth in Japan. The success of Governor Clinton in the US elections bodes well for growth in the US, at least in the short term, and this may offset the poor performance elsewhere in the OECD. However, the distinct possibility of a trade war following on from the collapse of the GATT round cannot be ignored, and such an outbreak would make our forecast much more pessimistic.

Type
Articles
Information
National Institute Economic Review , Volume 142 , November 1992 , pp. 34 - 62
Copyright
Copyright © 1992 National Institute of Economic and Social Research

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Footnotes

∗

We would like to thank Andrew Britton, David Mayes, Soterios Soteri, John Whitley and Garry Young for helpful comments and Helen Finnegan and Catherine Dargent for statistical assistance. This forecast has been prepared using our Global Econometric Model, NIGEM. The model is available from the Institute. It was developed by the Institute and is now jointly maintained with the London Business School.

References

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